When a local energy corporation wanted to make a real estate contribution to the University valued at more than $5 million, it decided not to give the property directly to the University. Instead, the Amvest Corporation, an asset of the late alumnus and philanthropist Carl W. Smith, donated its former headquarters to the University of Virginia Foundation in early August. The Foundation is a non-profit body, legally separate from the University, which manages more than $421 million of financial and real estate assets for the University in an effort to help the University combat the effects of declining appropriations from the Commonwealth.
Funding a growing endowment
The relationship between the Foundation and the University allows for freedom from many state regulations regarding the building construction and property management practices of a public institution. According to Foundation CEO Tim Rose and Bob Sweeney, senior vice president for development and public affairs, this independence includes the abilities to purchase land without prior approval from the Commonwealth, build and lease certain types of office space to private tenets, and award contracts to companies of the University's choice. This exemption from Commonwealth policy is essential to the University's ambition to be among the best institutions of higher education in the country, as it offers more freedom to manage property profitably, according to several University officials. Such a sentiment appears more pertinent following the late August announcement by Gov. Tim Kaine that the University must cut millions from its budget to make up for a $234 million Commonwealth budget shortfall.
"As compared with some states, Virginia clearly does not fund higher education on a per student basis to the extent that other states do," University Rector W. Heywood Fralin said. "It is essential that private funds be raised to help finance the operation of the University. Clearly, the U.Va. Foundation has been very instrumental and effective in raising funds."
The University is not currently capable of the management and sale of the kinds of properties the Foundation manages, Sweeney added. As the Foundation contains the infrastructure and staff in place to do so, it is the main repository for most of the trust and gift annuities given to the University.
Though there are no immediate plans for the Amvest donation, Rose said the building would eventually become part of the University's official holdings. Most real estate acquired by the Foundation, however, is sold.
"There are a number of issues that we look for," Sweeney said of decisions relating to property gifted to the Foundation. "Most development officers will say that you want to accept most of the real estate gifts that you get because if it's an easily sellable property, it doesn't matter what the appraised value is. If someone gives you a piece of property worth $250,000, but you can only sell it for $100,000, we're still $100,000 to the good on that."
The profits of these sales are then transferred to the University's endowment, which has seen a 25 percent return during the past year. Organizations such as the Foundation, along with efforts such as the Capital Campaign, could help drive the University's $4.5 billion endowment to more than $7.5 billion by 2011.
Arms-length relationship
Though the Foundation must be kept legally separate from the University according to state law, half of the Foundation's 14-member board have a direct relationship with the University. Such University membership includes three members of the Board of Visitors, President John T. Casteen, III, Leonard Sandridge, executive vice president and chief operating officer, Ariel Gomez, vice president for research and graduate studies, and Sweeney.
The Foundation as a body is distinct from the University. Rose said the membership of these officials ensures decisions are made in the best interest of the University. The Foundation also receives the guidance of the Board of Visitors and the administration, including University Development, the office that leads fundraising efforts.
The University's policy on University-related foundations states that "all correspondence, solicitations, activities and advertisements concerning the Foundation shall be clearly discernible as being from the Foundation and not the University."
Some names of assets owned by the U.Va. Foundation, however, make direct reference to the University without notation of their status as being owned and operated by the Foundation. The Cavalier Inn, for example, is noted as being "at the University of Virginia." Additionally, documents and flyers from the Foundation display an orange Rotunda stamp, similar to a watermark used by the University.
Officials from both the University and the Foundation said this does not conflict with the policy guidelines.
"We don't try to confuse people," Rose said. "We are trying to convey, as much as possible, that we only have one customer. We're not about serving ourselves. We're about serving the University."
The University of the future
Properties not sold for the benefit of the University's endowment are often acquired to further a process known as land banking, an investment in real estate based on planned or potential future development for that property.
The Foundation's ownership of almost all the property surrounding the intersection of Emmet Street and Ivy Road, for example, is being land banked for the eventual construction of what the Board of Visitors calls the "Gateway to the Arts" project. The Cavalier Inn, the Chevron station, the former Exxon station and Italian Villa restaurant are all owned by the Foundation. Demolition for some of these structures is planned for 2009, according to a February Board of Visitors' announcement, at which point a performing arts space, a museum, a student residential college, studios and a dining hall will be built.
West of Charlottesville, the Foundation owns the Boar's Head Inn, Birdwood Golf Course and additional land adjacent to both properties. The Boar's Head Inn properties have been beneficial to the University, according to Fralin, who noted the resort hosts many University-related functions.
Though many University officials view the Foundation's ownership of the Boar's Head Inn as crowning asset in its portfolio, Rose said the original plan was always to acquire the property for long-term growth.
"Fifty years or 100 years from now, my guess is the hotel won't be there," Rose said. "That's why the land was purchased, for land banking. I'm not saying U.Va. is going to jump the [Rt. 29/250] bypass, but I am saying that we purchased this land for the future growth of the University."
Bypassing state regulations
When construction of the University's two research parks, Fontaine and North Fork, began in 1994, the University decided it was both financially beneficial and expeditious to manage the projects through the Foundation. Some University officials have estimated that without this third-party group behind the construction, both projects would currently remain unfinished.
"There are very distinct requirements for constructing properties that are owned by universities," Fralin said. "It involves a process that takes a very lengthy period of time to be approved by officials in Richmond. It always costs more than the buildings would have cost without going through those detailed procedures."
Commonwealth construction regulations do not always constitute best business practices, according to Sweeney, who said the rules often are "onerous." Because many administrators consider state regulations counterproductive, the University chooses to operate through the Foundation.
"It is in our best business interest to be able to build these buildings at a fair cost and of the highest quality so that it has the longest use, because it validates to our donors that we are being responsible stewards of their money," Sweeney said.
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